Ebix – Goodwill Hunting

DECEMBER 11, 2018 – Following on from our presentation of the same title, Viceroy are releasing our preliminary report on Ebix, Inc (NASDAQ:EBIX). Our investigation has uncovered accounting discrepancies dating as far back as 2008to present day as well as several other red flags.

Numerous accounting discrepancies in years 2013 to 2018 regarding the recognition of goodwill and acquisitions within the Ebix group. These discrepancies have largely gone unnoticed due to the delay in local filings being signed off and the multi-jurisdictional nature of these transactions.

Over the course of our investigation we uncovered evidence of what we believe is a scheme to incorrectly book revenue and earnings. We believe this is done through the shuffling of assets from one subsidiary to another while improperly booking internal revenues, and contingent consideration “cookie jar” accounting.

We are limited by the recency of the available subsidiary filings. We believe this behavior continues to take place. Ebix’s acquisition spree in India further muddies the waters.

Ebix announced a change in auditor to T.R. Chadha from Cherry Bekaert (of MiMedx fame) after reporting material weaknesses regarding purchase and income tax accounting, pursuant to appointing a big four accounting firm in Q1 2019.

T.R. Chadha has never audited a US-listed entity and was auditor of several Indian Ebix subsidiaries in which there appear to be several accounting discrepancies.

Cherry Bekaert was subject to a scathing PCAOB inspection just weeks before its replacement.

Ebix’s subsidiary structure is excessively convoluted and opaque. The subsidiary structure includes holding companies in geographies where obtaining financials is near impossible. Many subsidiaries are held under a UK entity, Ebix International Holdings, which has only ever filed locally as a dormant company and recently received a warning of compulsory dissolution for failing to file accounts.

Ebix’s joint venture with Vayam Technologies, Ebix Vayam, accounts for 25% of Ebix’s receivables and only customers are Vayam Technologies themselves. Vayam appears never to have settled its receivables and the entire JV is funded by Ebix at an 8% interest rate, payable in receivables. This appears to be a scheme through which cash is injected in to make paper gains of margin plus 8%.

Ebix CEO Robin Raina is entitled to a massive payout in the event of an acquisition at the expense of shareholders. This poison pill protects short-sellers from takeovers by attaching an unreasonable premium to the company. This arrangement and its predecessor are currently subject of ongoing shareholder litigation.

The company’s debt-fueled acquisition binge in India was originally intended to create and list an Indian payments entity. This appears to have turned into an unfocused roll-up, with more and more scattered businesses being added to the Ebix stable. Despite these additions, Ebix does not break out its revenues from these disparate income streams.

Ebix’s has been subject to an undisclosed tax audit by the Australian Taxation Office since 2016, we believe due to the transfer of Telstra eBusiness Exchange assets to Ebix Singapore, and non-arm’s length transactions.

Due to the delay in availability of subsidiary accounts, and the rapidly expanding nature of the company’s operations we are unable to quantify a base downside. We believe it is highly likely given the progress of the shareholder litigation that regulatory authorities including the SEC open or reopen their investigations into the company. Accordingly, we believe that Ebix carries a high investment risk.